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AUSTRALIAN RETIREMENT INCOME SYSTEM Presentation for NDRC & Australian Treasury Bilateral Seminar Program 22 December 2008. Phil Gallagher, PSM Manager, Retirement and Intergenerational Modelling Unit Tax Analysis Division, AUSTRALIAN TREASURY Phone +61 2 6263 3945
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AUSTRALIAN RETIREMENT INCOME SYSTEMPresentation for NDRC & Australian Treasury Bilateral Seminar Program 22 December 2008 Phil Gallagher, PSM Manager, Retirement and Intergenerational Modelling Unit Tax Analysis Division, AUSTRALIAN TREASURY Phone +61 2 6263 3945 email phil.gallagher@ treasury.gov.au websites www.budget.gov.au http://rim.treasury.gov.au Views expressed in this presentation are those of the author and are not necessarily those of any Commonwealth Agency or of the Government
Objective of the presentation • To introduce the basic design features of the Australian retirement income system • To describe some of the basic governance arrangements • To present some projections of the systems outcomes • To describe the importance of the ‘superannuation’ (private pension funds) to Australian financial markets
Three Pillar Retirement Income Policy as advocated by the World Bank 1994 • 1) A publicly managed system with mandatory participation and the limited goal of reducing poverty among the old • eg In Australia the Age Pension is general revenue financed public pension available at 65. It alleviates poverty and is means tested • 2) A privately managed mandatory savings system • eg The Superannuation Guarantee requires contributions from employers equal to 9% of wages. Aim is to give retirement income which is a proportion of working life income • 3) A voluntary savings system. • In Australia, both superannuation and non-superannuation
Pillar 1: The Public Age Pension • Maximum single rate - $A14,765 (CY 60,390) • Maximum rate for one married person $A12,282 (CY 50235) Income test has free area and 40% reduction rate • Cutout- single $A40,501 (CY165,651) • Cutout couple combined $A67,652 (CY276,700) • Comparison average full time and part time earnings $A47,595 • Comparison average weekly full-time earnings with no overtime $A60,600年度
Background to the Superannuation Guarantee Pre-1992 Superannuation • Prior to 1987 policy relied on tax concessions • Coverage was only 40%, mostly for high income groups & Government Employees • Occupational schemes were generous because they were designed in the context of a low age pension • In 1986, then Government supported a Council of Trade Unions claim for minimum employer contributions of 3% for those covered by awards • Coverage was 80% by 1992 but most of new contributions were only 3%
THE SUPERANNUATION GUARANTEE (EMPLOYER CONTRIBUTIONS TO PRIVATE FUNDS) • In 1992 the then Treasurer announced Superannuation Guarantee Charge for employers not making minimum contributions • Would extend coverage beyond awards 雇用合同to employees earning over $450 per month (to over 90% of employees) • Would raise minimum employer contributions to 9% by 2002/03 • Contributions would go to Private funds, many to multi-employer industry funds • A major improvement in preservation (the laws preventing withdrawal not for retirement) began in July 1999
Voluntary retirement saving • Income Tax rates are currently 0, 16.5%, 31.5%, 41.5% and 46.5% • Employer Contributions to Superannuation funds are taxed at 15% • Earnings in funds are nominally taxed at 15% but effectively at between 5 to 8% • Payouts for those over 60 are tax free • Saving through employer superannuation contributions is concessional for nearly all taxpayers • Pre-tax employer contributions are concessional against income tax benchmarks and expenditure tax benchmarks • There is an income tested government co-contribution for after tax personal superannuation contributions of up to $1500 • For non-superannuation savings, there is a 50% discount for realised capital gains, and a dividend imputation system for shares 红利获得者的赋税
Australian retirement incomes Government policy & administration roles Component of retirement income Department responsible for policy advice & legislation Agency responsible for administration
Government Regulation of non-government funds Prudential Australian Prudential Regulation Authority for funds with 5 or more members Australian Taxation Office for funds with less than 5 members Consumer information – Australian Securities and Investments Commission
Australian Prudential Regulation Authority • Since 1 July 1998, jointly responsible for prudential regulation of regulated superannuation funds, Retirement Savings Accounts and Approved deposit funds under the SIS legislation. • (previously regulated by Insurance and Superannuation Commission) • Responsible for: • operations of funds including approval of trustees, operating standards, annual returns, governing rules, capital adequacy requirements, audits, reserves, preservation rules etc • FUNDS ARE ALLOWED TO INVEST PRUDENTLY AND DIVERSIFIED ANYWHERE IN WORLD
Australian Securities and Investments Commission • Since 1 July 1998, jointly responsible for prudential regulation of regulated superannuation funds, RSAs and ADFs under the SIS legislation. • Responsible for: • regulating consumer protection and market integrity aspects of superannuation, including information disclosure, complaints resolution, and licensing approved trustees.
Projected Population Replacement Rates Including Voluntary Saving
Projected Population Replacement Rates (Including Voluntary Saving)for Selected Deciles of Career Income
Financial aggregates • Superannuation directly finances 75% of Australian managed funds
Nominal Returns for a Median Fundto 31 October 2008 • Source: Super Ratings • Rolling 10 year return : + 6.37% pa • Rolling 5 year return: + 6.67% • Rolling 3 year return: + 2.40% • 1 year return: -17.61% • 3 months return: -8.55% • 1 month return: -6.65% The median fund is the balanced option. Returns are net of fees and tax.
Retail funds have lower returns than other fund types in growth markets because of lower equity proportions
